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The Price of Inequality, by Joseph Stiglitz

Readers of this blog may remember that a while back, I wrote about a book intriguingly entitledDeer Hunting With Jesus. This is Joe Bageant’s account of poverty among the poor white population of his home town, Winchester, Virginia. I noted at the time that Bageant is providing an impressionistic snap shot of people’s lives, not a scholarly discussion of the causes of poverty in America. Now Joseph Stiglitz (2012) has done that for us. He is a Nobel Prize winning economist, well qualified to talk about this subject. But this is not an academic treatise; it is his attempt to present a ‘popular’ – ie easy to read – explanation of the growing inequality in America.

Stiglitz gives plenty of evidence of the inequality he says is present in America. One statistic that I found shocking was that life expectancy among poor women – especially blacks and hispanics – is actually falling. Infant mortality is worse than that in Cuba. How can this happen in a rich country like America? But as Stiglitz points out, the deterioration in wages and standards of living among the poor has been matched by an increase in the wealth of the very rich, whereas those in the middle are at best stagnating. The top 1% of the population own more than one third of the nation’s wealth. Another statistic: the six heirs to the Walmart fortune own more wealth than the bottom 30% of Americans. Inequality is increasing, Stiglitz says, and likely to continue to do so, unless concerted action is taken. This matters because it is not only unfair, but economically inefficient. He also identifies the loss of opportunity as a major problem, with the children of the poor increasingly likely to be poor themselves, and the children of the rich likely to be rich. He feels that the belief in opportunity – the myth of log cabin to White House – is central to the American psyche, and undermining it is damaging social cohesion.

In Stiglitz’s view, none of this is happening by chance, or even because of the working of some inexorable economic law. His argument is clear: ‘while there may be underlying economic forces at play,’ he says, ‘politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.’ He explores a long list of factors that contribute to inequality. The economic ones include changes in manufacturing and the loss of many blue collar jobs, technological change and international competition in a global market place. Social factors include discrimination and loss of capacity for concerted action through unions. But is it the political factors he sees as most important: the ability of the rich to exploit the system by making their own rules. ‘Much of the inequality that exists today,’ he says, ‘is a result of government policy, both what the government does, and what it does not do’. The effects of government policy can be seen in many areas, but particularly in allowing rent-seeking, where wealth is not put to any socially productive use. Adverse activities include the weakening of laws that once limited monopolies, tax policy that allows the rich to pay tax at a much lower rate than ordinary people, if they pay at all, subsidies and concessions, and changes in regulations that favour big business. Then there is the failure to provide an adequate safety net for the poor, the sick and the unemployed. He sees a political system that ‘amplifies the voice of the wealthy’, where the power of large corporations and individual donors to members of Congress are at work.

You might think from this that Stiglitz is some sort of socialist, but while Americans of the Tea Party persuasion might consider this the case, nothing could be further from the truth. Stiglitz is a strong supporter of market capitalism; it’s just that his academic work tells him that markets don’t magically work to provide the best outcome for society. His Nobel Prize came for a theory about the effects of asymmetry of information on markets; there are, for example, always some people with more information than others, which automatically skews investment decisions. This is only one among many areas where markets fail in being self-regulating. ‘Markets by themselves often fail to produce efficient and desirable outcomes, and there is a role for government in correcting these market failures.’ Markets have to be managed, and this can be done in either the interests of the few or of the many. He is very critical of the neoclassical economists of the Chicago School of economic thought who appear to believe that the unequal outcomes currently produced are somehow not only inevitable, but also for the common good. He says their claim that wealth ‘trickles down’ is demonstrably wrong.

Has Stiglitz produced a ‘popular book? He’s done a good job of keeping the economic jargon to a minimum, and there are extensive endnotes for anyone who wants further evidence or argument. I think it suffers from too much repetition, possibly because the factors he discusses are intertwined, or maybe to drive his point home. But even if you don’t read all of it, it’s worth looking at the final chapter where he lays out what might be done to correct the current situation. Let’s hope his suggestions meet with some success – but don’t hold your breath.

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7 Responses

[…] recently – Deer Hunting with Jesus: Dispatches from America’s Class War, by Joe Bageant and The Price of Inequality, by Joseph Stiglitz. Flight Behaviour gives a no less graphic picture of poverty than either of […]

I like your point on political iiaeuqlnty. A lot was made over the energized Democratic base and the increase in younger voters in the 08 election. I think both these things will have a nominal effect in addressing political iiaeuqlnty in the future. What progressives and liberals want for the poor, minorities and the working class are often lofty, sophisticated (requiring a lengthy investment in time) and inaccessible policies. I think rebalancing political iiaeuqlnty happens along a continuum. First comes getting people engaged, second comes making politicians accountable. I think the rebalancing would happen naturally for the poor, minorities and working class if the distribution of the political benefit were transparent on the local level. That is, each politician probably has a very limited sphere of where he/she can affect political outcomes, yet if the poor, minorities and the working class could see more clearly the specific changes politicians could affect, they would become more engaged in the process in order to get their needs met and make politicians more accountable.